State of Education in New Zealand: 2008

Publication Details

The State of Education series is an annual publication. State of Education in New Zealand: 2008 is the third issue in the series, with most of the data relating to the previous year (2007).

Author(s): Strategy and System Performance, Ministry of Education.

Date Published: December 2008

This report is available as a download (please refer to the 'Downloads' inset box, top right). To view the individual chapters please refer to the 'Sections' inset box (right). For links to related publications/information that may be of interest please refer to the 'Where to Find Out More' inset box (below right).

Chapter 4: Labour market

The success of an education system is manifested in, among other things, the success of individuals in the labour market. There is a substantial body of evidence to show that on average those with higher levels of education are more likely to participate in the labour market, face lower risks of unemployment, have greater access to further training and receive higher earnings.

These labour market advantages are an important outcome of education. They may even be the primary economic and social outcome, because earned income enables people to achieve higher standards of living and many of the other individual and national outcomes associated with education accrue either directly or indirectly from this.

Areas examined in this chapter are education’s impact on income, income premiums through education, and unemployment.

There is a lot of good quality labour market information available. However, there is a lack of longitudinal information following the many pathways of school leavers to tertiary education, the labour market and non-labour market activities.

16. Youth inactivity

What we have found

Between 2004 and 2007, there was a slight increase in the percentage of youth aged 15 to 19 who are inactive – that is, not in employment, or in formal study, or in a care-giving role. This compares with a slight decrease in the percentage of the population aged 20 to 24 not in employment, formal study or a care-giving role.

When examining the data for men and women separately, the percentage of both males and females aged 15 to 19 not in employment, formal study, or a care-giving role increased between 2004 and 2007. However, for the population aged 20 to 24, the situation of women has improved. There was a decrease in the percentage of women not in employment, formal study, or a care-giving role, compared with an increase for males.1

Why this is important

The proportion of people aged between 15 and 24 years not in employment and/or study is an indicator of the effectiveness of the senior-secondary and tertiary education sectors. It gives a sense of the way the system manages transitions from school to further study or employment.

How we are going

The employment, study, and care-giving status of the youth population is reported in Statistics New Zealand’s Household Labour Force Survey.2 The data show:

the percentage of the population aged 15 to 19 who were not in employment, study, or in a care-giving role increased from 7.9 percent in 2004 to 8.8 percent in 2007

the percentage of the population aged 20 to 24 who were not in employment, formal study, or in a care-giving role decreased from 8.7 percent in 2004 to 8.4 percent in 2007

the percentage of the male population aged 15 to 19 who were not in employment, study, or in a care-giving role increased from 7.7 percent in 2004 to 9.2 percent in 2007. For females, the percentage increased slightly from 8.1 to 8.5 in the same period

the percentage of the male population aged 20 to 24 not in employment, study, or in a care-giving role increased from 6.8 percent in 2004 to 8.6 percent in 2007. For females, the percentage decreased from 10.6 in 2004 to 8.1 percent in 2007.

Figure 16.1: Percentage of the youth population not in employment, study or in a care-giving role by age group (2004 to 2007)Note:

Where to find out more about Youth Inactivity:

17.Effects of education on income

What we have found

The higher the level of qualification a person holds, the greater the likelihood that he or she will have a higher income. There are disparities in earnings between men and women, with men generally earning more than women who hold the same qualification. However, these disparities in earnings are reducing over time among those with tertiary qualifications. Ethnic disparities in earnings continue to exist even at higher qualification levels.

Why this is important

One of the important marks of the success of an education system is the opportunity it creates for individuals to find sustainable employment. Another is the fact that employers recognise and are willing to pay for the skills and knowledge acquired by people in the course of their education. People with higher levels of education, on average, are more likely to participate in the labour market, face lower risks of unemployment, have greater access to further training, and receive higher earnings.

These labour market advantages are an important outcome of education. They may even be the primary economic and social outcome because a higher income enables people to achieve a higher standard of living and many of the other individual and national outcomes associated with education may accrue either directly or indirectly from higher incomes.

How we are going

The effects of level of highest qualifications on income

New Zealanders who attain tertiary qualifications generally earn higher incomes than those without tertiary qualifications. The data show:

between 1997 and 2007, the real median weekly income for those with bachelors degrees or higher tertiary qualifications was approximately two and a half times that of people with school qualifications or no formal school qualifications (see Figure 17.1)

between 1997 and 2007, the median weekly income of holders of non-degree level tertiary qualifications was twice that of those with school qualifications or no formal school qualifications

for men, the percentage gain from holding bachelors degrees or higher qualifications, compared with those with no qualifications, decreased from 197 percent in 1997 to 149 percent in 2007. Over the same period, the percentage gain for women with a bachelors degree or higher qualification over those with no qualifications rose from 132 percent 145 percent3

the percentage gain for men holding non-degree level tertiary qualifications over men with no qualifications fell from 117 percent to 99 percent. Women in that category experienced an increase in premium from 55 percent to 61 percent over the same period, according to Statistics New Zealand data.

While there are gender disparities in earnings, these are reducing over time for those with tertiary qualifications (see Figure 17.2). The data show:

the earnings gap between men and women has decreased since 1997 for those with a bachelors degree or higher qualification. The premium in median weekly income experienced by men over women was 67 percent in 1997. The premium decreased to 42 percent in 2007. While the earnings gap slightly decreased for those with other tertiary qualifications, it increased for those with school qualifications or no qualification.

18.Graduate income premium

What we have found

The differences in earnings between those who have undertaken tertiary education depend in large part on the level at which they study. But within each level of study, completion does make a difference to people’s earnings. On average, people who start qualifications and complete them earn more than those who start qualifications at the same level but do not finish. In other words, the labour market pays a premium for completion of qualifications.

The highest premium is paid for completion of a bachelors degree and this premium endures over time. A significant premium is also paid for completion of a diploma. The premium for completion of a certificate is lower, reflecting the type of work that certificate holders typically undertake. A masters degree has a low premium, reflecting the fact that those who start a masters degree but do not finish will usually have completed a bachelors degree and hence will enjoy the lift in earnings that qualification brings.

The premium paid for completion of a bachelors degree is higher among Māori and Pasifika; this means that completion of those qualifications tends to reduce disparities between ethnic groups.

Why this is important

One of the marks of the success of an education system is the extent to which it helps individuals to find sustainable employment and the extent to which employers are willing to pay for people’s skills and knowledge. Both indicate the extent to which the education system serves the economy.

Because people with higher levels of education are more likely to participate in the labour market, they face lower risks of unemployment, have greater access to further training, and receive higher earnings on average; they also benefit personally from their education.

How we are going

The premium for completion

The ‘premium for completion’ compares the mean income of students who have completed tertiary qualifications against those who started but failed to complete the same level of qualifications. This gives the ‘benefit of completion’ or the premium in earned income that students who complete receive.4 The labour market pays the highest income premium for completion of bachelors degrees.

The data show:

the premium for completion of most qualification types is evident from the point of leaving study and, in most cases, is still visible nine years after leaving

the premium for completion of a bachelors degree remains at around 30 percent or more over the first nine years following study

the premium for completion of a bachelors degree is even higher at lower levels in the income distribution5

the premium for completion of a level 1 to 3 certificate is lower, but still enduring – among those who left study in 1997, the premium nine years after leaving was 10 percent, while the 2000 leavers had a premium of nearly 20 percent in 2006

the premium for completing a postgraduate qualification is lower, largely because holders of postgraduate qualifications had already earned a premium for their bachelors degree

there is also a substantial premium for completing a level 5 to 7 diploma – about 14 percent nine years after leaving.

Demographic factors and the premium for completion

Women generally earn less than men with equivalent qualifications and there are also disparities in earnings between different ethnic groups. This section looks at the extent to which the completion of a bachelors degree and levels 1 to 3 certificates reduces these disparities. The data show:

women have been enjoying similar earnings premiums to men in recent years. In 2006, for those who had left study in 1997 having studied at bachelors degree level, the premium among the women was 44 percent, compared with 41 percent for men. In 2006, after six years in the workforce, women who had completed a bachelors degree enjoyed a premium of 36 percent, marginally higher than men (35 percent)

Māori and Pasifika who complete bachelors degrees receive higher premiums than those of European/Pākehā ethnicity, indicating that completion at this level tends to reduce the earnings disparity between those two ethnic groups and European/Pākehā people.

19. Unemployment rates

What we have found

The unemployment rate remained stable for those with higher qualification levels compared to those with no qualification. The unemployment rate among those with no qualifications rose in 2007 after reaching its lowest level in 2006. There is still an ethnic disparity in unemployment rates. The gender disparity in unemployment rate reduced among those with bachelors degree or higher qualification levels.

Why this is important

One of the important marks of the success of an education system is the opportunities it creates for individuals to find sustainable employment. Participation in employment can lower economic dependency and deprivation and help to raise an individual’s living standards. This in turn helps contribute to the growth of a healthy society. The employment prospects of individuals with varying levels of qualifications depend both on the requirements of labour markets and on the supply of workers with different skills. Those with low educational qualifications are at particular risk of economic isolation since they are both less likely to participate in the labour force and more likely to be without jobs even if they are actively seeking them.

How we are going

The labour force participation rate has increased considerably over the past few years, resulting in a narrowing of the gap in the unemployment rate between those who are tertiary qualified and those with no qualifications. The unemployment rate rose between 2005 and 2007 for those with no qualifications, whereas it remained stable for those with non-degree tertiary qualifications and for those with bachelors degrees or higher qualifications. The overall unemployment rate has also decreased since 1998 as a result of the strong New Zealand economy.6 The data show:

in the 16 years since 1991, people with tertiary qualifications have been considerably more likely than those with only school qualifications to be in employment. Unemployment rates for those with non-degree tertiary qualifications are now very similar to those with bachelors degrees or higher qualifications (see Figure 19.1)

after reaching it lowest level in 2006, the unemployment rate for those with no qualifications started to rise again in 2007.

The disparities in the unemployment rates of different ethnic groups holding tertiary qualifications reduced between 1991 and 2007. The gap between ethnic groups has narrowed especially among those with bachelors degrees or higher qualifications. The data show:

the unemployment rate is lowest among people of European/Pākehā ethnicity. Their unemployment rate decreased from 3.6 percent in 1991 to 1.9 percent by 2007 for those holding a bachelors degree or higher qualification levels. The unemployment rate of the ‘other’ ethnic group category (which includes Asian and other immigrants) peaked at 15.4 percent in 1991 before falling to 3.5 percent in 2007

among Māori with a bachelors degree or higher qualification, the unemployment rate dropped from 13 percent in 1992 to 3.4 percent in 2007. Among Pasifika, the drop was more significant – from 10 percent in 1991 to less than five percent in 2007

the unemployment rate also narrowed gradually between ethnic populations holding non-degree level qualifications. The unemployment rate dropped for European/Pākehā with non-degree level qualifications from six percent to less than two percent between 1991 and 2007

among Māori, the unemployment rate fell from 19 percent to six percent between 1991 and 2007. For Pasifika it went down from 20 percent to 6.5 percent in the same period.

Figure 19.1: Unemployment rate in the population aged 15 years and over by highest qualification (1991 to 2007)Note:

The Household Labour Force Survey, from which all these numbers are drawn, is a sample. As a result, some of the figures are subject to sampling error. The sampling error in the case of this sub-category of the respondents is between eight and 10 percent. Therefore, caution must be used when looking at the unemployment rate of bachelors degree for Māori and Pasifika, which are highly subject to sampling error due to very small sample size.

Figure 19.3: Unemployment rate in the population aged 15 years and over by highest qualification and gender (2007)Note:

The gender disparity in the unemployment rate is lowest among those with tertiary qualifications. In 2007, men and women with a bachelors degree or higher had the same unemployment rate of 2.2 percent (see Figure 19.3).

Women with school level qualifications and those with no qualifications had higher unemployment rates than men with similar qualification levels.

Footnotes

The inactive group include those individuals who are not employed and/or study and do not include those classified as caregivers.

Note that the Household Labour Force Survey, from which all these numbers are drawn, is a sample. As a result, some of the figures are subject to sampling error. The sampling error in the case of this sub-category of the respondents is between eight and 10 percent. Therefore, caution must be used when looking at this result.

In Chapter 17 – Effect of education on income, comparisons of earnings were made between people with tertiary qualifications and people with no qualifications. Differences in earnings in that chapter are not directly comparable with differences concluded here.

If we take all students who completed a bachelors degree and compare the income of the student at the 25th percentile with the corresponding student for those who started by failed to complete a bachelors degree, then the premium for completion was nearly 70 percent nearly nine years after leaving study.

In 2007, out of 27 OECD countries, New Zealand ranked fourth (after Norway, South Korea, and the Netherlands) with a standardised unemployment rate of 3.6 percent, compared with the OECD average of 5.6 percent.